UNIVERSITY EXAMINATIONS: MAY 2024

Module Code: ACF318

CRN 50302/50067

Module Title: Financial Accounting

SECTION A - Answer question 1

Question 1

On 1st May 2020 Princeton plc acquired 80% of the shares in Dartmouth Ltd when the  balance on the retained earnings of Dartmouth Limited was £110m and the balance on the general reserve of Dartmouth Limited was £10m.

a)     During the year ended 31st  December 2023 Princeton plc sold goods to Dartmouth Ltd for £60m.  Princeton plc sets its prices at cost plus 1/2.  One quarter of these goods were included in the inventories of Dartmouth Ltd at 31st December 2023.

b)     None of the companies paid dividends during the year ended 31st  December 2023.

c)     Princeton plc uses IFRS3 Method 2 to value Non-Controlling Interest (NCI). The fair value of the NCI at the date of the acquisition was £80m.

d)     Included in Princeton plc’s Receivables is a balance due from Dartmouth Ltd of

£50m.  Dartmouth Ltd.’s Payables include a balance due to Princeton plc of £40m. On 28th  December 2023, a payment for £10m had been sent by Dartmouth Ltd to   Princeton plc but was not received until 4th  January 2024.

e)     The fair value of Dartmouth Ltd.’s property was £10m higher than book value at the date of acquisition. This has not been reflected in Dartmouth Ltd.’s financial statements. If Dartmouth Ltd had accounted for this revaluation additional depreciation of £1.2m would have been charged to date.

Required:

(i)     Calculate the amount to be included in the consolidated statement of financial position as at 31st  December 2023 for:

a.     Goodwill

b.     NCI and

c.     Consolidated reserves (11 marks)

(ii)    Prepare the consolidated statement of profit or loss for the year ended 31st December 2023 (5 marks)

(iii)    Prepare a reconciliation of profits at 31st  December 2023 (2 marks)

(iv)   Prepare the consolidated statement of financial position as at 31st  December 2023. (7 marks)

[Total: 25 marks]

SECTION B - Answer any TWO questions

Question 2

Bruges plc is a manufacturing company preparing its financial statements to 31st December 2023.

Notes:

a)     The directors estimate that the income tax charge for the year will be £74,000.

b)     Inventory at 31st  December 2023 was counted and had a cost of £988,000.

c)     At 31st  December 2023 an impairment review of the intangible asset with an

indefinite life has resulted in an impairment loss of £30,000. No adjustment has been made in the trial balance for this impairment loss.

d)     During the year the company entered into the following lease agreement for machinery during the year ended 31st  December 2023.

Lease term                                                                     5 years

Lease payments                    5 x £80,000 paid annually in advance

Expected useful life of the asset                                        6 years

PV of min lease payments                                              £355,000

Rate of interest implicit in the lease                                    6.35%

The payment of £80,000 was included in administrative expenses.

e)     The cost of the building’s element of the property, when purchased, was £650,000. The useful life of the building is estimated to be 50 years from the date of acquisition. Depreciation on buildings is to be allocated 75% manufacturing and 25% administration.

f)       Depreciation is to be charged on plant and machinery at 20% reducing balance.

Required:

(i)     Prepare the journal entries and a brief description of the accounting treatment required to account for notes (a) to (f) above. (12 marks)

(ii)    Prepare the Statement of profit or loss and other Comprehensive Income and

Statement of Changes in Equity for Bruges plc for the year ended 31st  December 2023, and a Statement of Financial Position at that date, in accordance with relevant accounting standards as far as the information permits. (13 marks)

SHOW ALL WORKINGS

[Total: 25 marks]

Question 3

(a)    There were no disposals of land and buildings during the year.

(b)    Equipment which had cost £28.2m which purchased and when had a Net Book   Value of £14.4m, was sold during the year for £9.5m.  All appropriate accounting entries have been made in the financial statements.

(c)    The total amount paid in the year to 31st  December 2023 in respect of leases was £706,000 of which £ 118,000 was interest.  Leases were used to finance additions to equipment.

(d)    The corporation tax charge for the year to 31st  December 2023 was £14m.

(e)    Debenture loans were repaid on 1st  October 2023.

(f)     There were no interest charges other than debenture interest and interest on finance leases.

(g)    Investments in equities, which had a cost of £12.5m, were sold for £13.5m during the year.

Required:

Prepare a Statement of Cash Flows for Duke plc for the year ended 31st  December 2023 in accordance with IAS7 Statement of Cash Flows.

[Total: 25 marks]

Question 4

Brown Limited is a manufacturer and retailer which has prepared its draft financial statements for the year ended 31st  December 2023.  The company had the following non-current assets at the start of the year 2023: -

a)     Brown Limited has the following depreciation policy:

•    Freehold land is not depreciated.

•    Buildings are depreciated on a straight-line basis over 50 years.

•    Plant and machinery are depreciated at 20% reducing balance.

• Office equipment is depreciated at 10% on cost.

b)     On 1st July 2023 a piece of land was purchased as a location for a new

manufacturing base. The following costs were incurred to 31st  December 2023.

c)     In July 2023 Brown Limited purchased new plant at a cost of £1.5m.  As this new machinery opens up the opportunity to export and create employment a local enterprise agency has agreed to provide grant assistance amounting to 10% of the cost.

Required:

Write a report: -

(i)     Discussing the requirements of IASB regarding tangible non-current assets. (10 marks)

(ii)    Explaining the treatment required for the above additions to non-current assets,

setting out the alternative treatments available where a choice exists. (5 marks)

(iii)   Showing the non-current asset schedule for inclusion in the financial statements to 31st December 2023, clearly showing the different options where there is a choice  of alternative treatments. (10 marks)

[Total: 25 marks]

SECTION C- Answer ONE question

Question 5.

“Accounting for intangibles needs to be revisited”.

Required:

Discuss the above statement, referring to relevant literature where appropriate.

[Total: 25 Marks]

Question 6.

“Financial reporting no longer meets the needs of users as stakeholders are interested in

more than the bottom line.”

Required:

Discuss the above statement, referring to relevant literature where appropriate, with particular reference to developments in sustainability reporting.

[Total: 25 Marks]